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Abstract
This dissertation consists of four studies on the role of institutions, education and institutional reform in economic development. Three of the studies examine empirical aspects of the issue and the fourth provides an analysis of policy implications. A key theme of the dissertation is the recognition that institutions, both formal and informal, are important for development. The observation that some developing economies have been unable to substantively improve institutional structures, creates a vital agenda for studying institutional change.
The first study empirically investigates the impact of education, both quantitatively and qualitatively, on the informal institution of social capital measured as social trust. Differences in levels of education are considered to find the separate effects of primary, secondary and tertiary education. The relationship between education and social trust levels in countries is found to be positive. The sample is further split into developed and developing countries which also substantiates the main hypothesis. The results can be interpreted as schooling playing a transformative role in the society.
The second study develops a framework for studying education inequality and institutional development. A range of economic, political and social measures of institutional quality are used in a cross-country analysis. The study confirms that the cross-country differences in institutional variables are influenced negatively by the education inequality. Several competing hypotheses of institutional improvement are used to test the sensitivity of the results. The sample is further split into OECD and non-OECD countries, with no new results arising from this split.
The third study investigates the relationship of education inequality and institutional quality using panel data techniques and an alternative data set of institutional measures, than the one used in the second study. This study initially estimates the relationship using the pooled OLS and fixed effects models. The issue of persistency in institutional variables is then investigated by using a system GMM estimator. The evidence suggests that the impact of reducing education inequality is associated with improvements in institutional quality.
The fourth study analyses the implications from the first three studies with reference to the institutional reform agenda. Insight is given for improving the reform process. Areas of context specificity and sequencing of reforms are dealt with, using country examples. The intuition from this essay is that educational equality is a deliberate initiative which needs to be carried out through policy initiatives, although the process adopted would depend on the specific economy. It is suggested that there is a need to change the fundamental focus from emphasis on altering formal rules, to considering the current underlying structures in societies as a constraint, in developing a way forward to improving the reform agenda.